MNI Norges Bank Review - January 2022: Go For March

Executive Summary:

• Main Policy Rate unchanged at 0.50%, alongside MNI expectations
• Bank gave greenlight for next hike in March
• Wages, waning infection rates expected to contribute to higher underlying inflation ahead

MNINBRevJan22.pdfMNI Point of View

The Norges Bank kept the main policy rate unchanged at 0.50% in January, alongside the guidance published in December and inline with market expectations. As was the case at the last meeting, the bank name-checked March as the next most likely rate rise, giving the greenlight to further tightening across this year. This feeds into expectations that the Norges Bank will follow through with a rate hike at each policy report meeting (March, June, September, December) this year, leaving rates at 1.50% at year-end. This suggests there are significant upside risks to the front-end of the path projections going forward.

The bank’s policy statement was broadly inline with the communication issued in December last year in identifying COVID as a rolling risk to the policy outlook. Although, the bank acknowledged the omicron variant appears less virulent relative to prior virus waves, and strengthened their language around wage formation and prices. The bank stated that the committee “was also concerned with the risk of a potential rise in domestic price and wage inflation due to capacity constraints and persistent global price pressures.”